Human embryonic stem (ES) cells and induced pluripotent stem (iPS) cells offer a powerful system to model human disease as well as a possible source of tissue for cellular therapies. Generating functional lung tissue from pluripotent stem cells has proven to be a challenge due the complex nature and many cell types that make up this tissue. The goal of this proposal is to optimize the generation of human lung cell types from stem cell sources. Our laboratory has recently described a new endodermal stem cell population termed endoderm progenitor (EP) cells, derived from human ES cell or iPS cell lines. We have shown that EP cells can self- renew in vitro and generate many endodermal lineage cells, including cells of the pancreas, liver and intestine. Functional pancreatic beta cels can be generated from EP cells in vitro but not from ES cells. Moreover, there is no teratoma formation when EP cells are transplanted into immuno-deficient mice. These data suggest that EP cells provide a functionally superior and safer starting point for generating endodermal cell types. In this proposal we determine the ability of EP cells to serve as starting material for generating anterior foregut endoderm derivatives. While the ability of EP cells to generate lung tissue is unknown, preliminary data suggest that EP cells can be induced to form anterior foregut endoderm and can spontaneously differentiate into lung lineage cells upon transplantation in vivo. We will characterize and optimize the differentiation of lung lineage cell from EP cells. Specifically, we will generate lung precursors from EP cells in vitro and in vivo and further mature EP-derived lung precursors into functional lung cells that secret surfactant proteins and more closely resemble normal human lung cells. We will also compare the relative ability of EP cells or ES/iPS cells to generate mature lung lineage cells by gene expression and functional assays. These studies will establish EP cell-derived lung tissues as a novel model system to study lung development and potentially provide a platform for treatments of lung diseases using patient-specific pluripotent stem cells as a source of EP cells.